Transaction Fees

An introduction to transaction fees and why they are essential to all blockchains.

Why do I need to pay fees for transactions?

Transaction fees for blockchain transactions are analogous to bank fees for bank transactions. All open, public blockchains will have one thing in common, a user will pay a fee in order to send a transaction. The main reason for this is due to incentivisation. There are actors within in the system who add transactions to a block and add blocks to the blockchain. These actors are known as miners, stakepool operators, or in VeChain's case, Authority Masternodes (AM). Regardless of the consensus approach, these actors are financially incentivized to maintain the blockchain, in part or in full, by the fees users pay to send transactions.

How do transaction fees differ to banking fees?

There are several ways that blockchain fees differ to the fees traditional banking institutions charge for payments:

Fee Calculation: In blockchain networks, transaction fees are generally calculated based on the size of the transaction (in bytes), the type of transaction, the network congestion and the priority of the transaction. Whereas, traditional banking fees vary depending on the specific banking institution, the account type and what services were rendered by the bank to complete the transaction.

Transparency: Blockchain transaction fees are transparent and publicly visible on the blockchain. Users can check the current fee rates and observe the fees paid for specific transactions using blockchain explorers or wallets. This is not generally the case for banking transaction fees. Traditional banking fees are often not explicitly disclosed or transparent.

Cross-Border Transactions: Blockchain networks, by design, can facilitate cross-border transactions cheaper and faster than traditional banking institutions. The geographical location of the receiver is not taken into account during the calculation of the transactions fees. This is not the case for traditional banking fees, as cross-border payments require correspondent banking relationships, currency exchange fees, and wire transfer charges, all of which are passed to the customer in the form of transaction fees.

What is fee delegation?

On the VeChainThor blockchain, a user is able to delegate the payment of the transaction fee to a separate entity. This powerful feature sets VeChain apart from other blockchains as a truly enterprise focused blockchain ecosystem. Removing the need to pay for a fee significantly reduces the barriers to entry for a user to use decentralized applications (dApps) that are built on the VeChainThor blockchain.

Want to learn more about how fee delegation works under the hood, skip to the Fee Delegation section.